The Iran conflict continues to dominate the news. Oil prices are moving higher while the markets saw increased volatility this week. With higher energy prices alongside seemingly entrenched inflation, it’s looking less and less likely that the Fed will cut rates this year. Watch the full video to hear Aya’s analysis of markets, the Fed meeting, and the latest in AI-related news.

TRANSCRIPT:

And welcome to this week’s 7 Market Movers video from Wealth Enhancement. My name is Aya Yoshioka, Director and Senior Investment Strategist. Each week, we highlight the headlines that captured the market’s attention and what it means for you, the investor.

So what do we get when you mix, some geopolitical energy shock with some sticky inflation data right into a central bank week? Well, you get this mixed market characterized by elevated volatility.

And the US equity market was actually down for the week, while international equities were up. Yields were higher and the US dollar was weaker.

So first off, the Middle East conflict continues and the market remains concerned with the energy supply risk and its ramifications. The longer this disruption goes on, the impact across industries really increases. And this is despite the large potential release of reserves that looks to buffer some of the shock.

Earlier in the week, markets were already nervous that high energy prices, would show up in inflation data and keep monetary policy tighter for longer. By midweek, bond traders had already downgraded the odds of even one fed rate cut this year as oil moved higher with Brent touching a $110 and producer price inflation coming in hotter than expected.

When energy rises and inflation, doesn’t cool fast enough, the Fed gets less freedom to cut interest rates. And at the, at the Fed’s March meeting, they confirmed just that, where policymakers are staying patient, as the Fed kept interest rates unchanged.

They really emphasized that they need more evidence that inflation is decisively trending lower before making a change, and it was too soon to gauge the effects of the surge in oil prices driven by the conflict in Iran.

Bond volatility remains elevated with each new data release shifting the perceived timeline for the Fed’s next move.

Coming back to equity markets, equity performance reflected the ongoing tug of war between these inflation concerns and growth uncertainty.

But a big counterweight to the macro stress came in the form of the AI complex. And we heard from two tech companies this week, NVIDIA and Micron. NVIDIA’s messaging from its large tech conference known as GTC was a reminder that underneath some of this macro volatility that we’re experiencing, the market still cares about the AI CapEx cycle and its product roadmap. At the conference, NVIDIA projected a trillion dollars in revenue for two of its chip families for the 3-year period ending in 2027, double what it saw a year earlier. Micron reported earnings which were very strong and provided guidance that exceeded Wall Street estimates as AI related demand for their memory chips continues to outpace supply.

So, yes, AI is still a dominant secular story in equity markets, but this week reminded everyone that macro can still trump, the tape in the short run. As we think about how markets will shape up going forward, if energy prices remain elevated and the conflict remains disruptive, then inflation worries can continue to remain sticky, yields can stay pressured, and markets can remain choppy.

However, if there’s a de-escalation or credible progress on that front, then the market could very well rotate back towards growth and especially towards areas that were already showing strong fundamental momentum.

In short, this week was about the energy shock and what it means for inflation and the Fed, and markets reprice the Fed’s forward rate path, digesting some of this sticky inflation data as well as incorporating concerns that inflation will remain higher going forward.

All of this led to a reassessment of the growth outlook, which still remains relatively healthy despite all of these concerns.

With that, thank you so much for listening and we’ll see you all again next week.